Asian Stocks Tumble as U.S. Rate Cut Expectations Dwindle

Asian stock markets slid sharply on Monday, led by significant losses in Australian and Hong Kong equities, as stronger-than-expected U.S. payroll data prompted investors to reconsider the likelihood of near-term interest rate cuts by the Federal Reserve.

The Hang Seng index in Hong Kong plunged significantly, while China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes also posted losses. Despite better-than-expected December trade balance data from China, it failed to provide meaningful support to the markets, reflecting broader concerns about global monetary policy.

Australia’s S&P/ASX 200 shed 1.4%, with declines across most sectors. However, shares of Insignia Financial Ltd rose nearly 3% to a three-year high after receiving an improved buyout bid from Bain Capital, standing out as a rare bright spot.

Markets in Japan were closed for a public holiday, contributing to subdued trading volumes across the region. Meanwhile, U.S. stock index futures remained largely steady during Asian trade as investors turned their attention to key U.S. inflation data expected later this week.

Last Friday, U.S. labor market data revealed that job growth accelerated unexpectedly in December, with the unemployment rate falling, signaling continued strength in the economy. This dampened expectations for additional Federal Reserve rate cuts in the near term. The central bank reduced rates by 100 basis points in 2024 but has recently signaled fewer cuts for 2025 due to persistently high inflation and a resilient economy.

“Another upside surprise in U.S. jobs data intensifies the belief that the Federal Reserve is under no immediate pressure to reduce interest rates,” ING analysts noted. They added that revisions to benchmark jobs data next month could potentially alter the outlook, but sticky inflation increasingly suggests an extended pause in rate changes.

Goldman Sachs, reflecting the stronger-than-expected labor market, has revised its forecast, now predicting two Fed rate cuts in 2025 compared to an earlier projection of three.

Elsewhere in Asia, the Philippines’ PSEi Composite dropped over 1%, and Singapore’s Straits Times Index declined by 0.3%. South Korea’s KOSPI index fell 1%, weighed down by political turmoil, as authorities continued efforts to arrest impeached President Yoon Suk Yeol amid allegations of an attempted imposition of martial law.

India’s Nifty 50 futures signaled a sharp drop at the opening bell, extending the region-wide pessimism.

With uncertainties surrounding U.S. monetary policy, geopolitical tensions, and lackluster regional data, Asian markets appear set for a challenging start to the week. Investors will now focus on upcoming U.S. inflation figures for further clues about the Federal Reserve’s next moves.